Public Expenditures and Revenue

1. Public Revenue and expenditure
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2. Revenue Receipts and Capital Receipts
Revenue Receipts
• Amount received from sale of goods
• Fees received from the services provided by the business
• Interest and dividend received on investment
• Routine incomes
Capital Receipts
• amount received from fixed assets or investment.
• Amount received by company from issue of shares.
• Amount received as loan
• Amount received as compensation from accident of assets
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3. Public Revenue
Public finance is a concept that includes Public expenditure,
public debt and public revenue and income.
Public revenue is exactly income generated from sources of
government in order to meet requirements of expenses of
public.
Public revenue generally refers to government revenue. Some
important sources or concepts that are included in public revenue
consist of taxes, fees, sale of public goods and services, fines,
donations, etc.
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4. Sources of Public Revenue
Two sources
1. Tax revenue
2. Non-tax revenue
Tax revenue: two types
i. Direct taxes –income tax, expenditure tax etc.
ii. Indirect taxes-sales tax, customs duties and
exercise duties etc.
Non-tax revenue
Fees, rates, fines, forfeitures and escheat, gifts and
grants etc.
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5. Sources of Public Revenue
The main sources of public revenue are: Tax and Non-tax
revenue
A) Tax Revenue: The chief source of public revenue is Tax. To
define tax, it is said that tax is a mandatory imposition of
duty on public authority by government organizations to
meet requirements of general public as a whole.
Broad classification of taxes is: Direct and Indirect Taxes
Direct taxes; Direct taxes are levied on wealth and income of
individuals or organizations. These taxes are personal income
tax, corporate tax, and gift or wealth tax. The impact of direct
taxes is on the same person.
Indirect Taxes: These taxes are levied on manufactured
goods and consumable goods Excise Duty, Customs Duty,
Service Tax, Goods and Service Tax
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6. Sources of Public Revenue
b) Non tax revenues; Non Tax Revenue comprises all revenues
apart from taxes accumulated to the Government. Non tax
revenues are funds that are generated from internal sources.
Important sources of Non tax revenues include
a) Special Assessment:
A compulsory contribution levied in proportion the specific
improvement to property undertaken in the public interest.
This tax is imposed to a certain category of members of a
community who are generally benefited from governmental
activities or public functions like constructions of road,
railways, parks, etc.
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7. Sources of Public Revenue
Therefore, government imposes special charges on such
properties
b) Surplus of Public Enterprises
The government has arranged public sector enterprises that
are concerned in commercial activities. The surpluses
generated of these enterprises are a significant source of non-
tax revenue. These incomes are in the form of profits that are
known as commercial revenues.
c) Fees:
A fee is a significant source of managerial non tax revenue
charged by Government authorities for depiction services to
the members of the public.
There is no compulsion to pay fees. All those utilize services
may pay fees.
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8. Sources of Public Revenue
Fees may be charged for getting licenses, passports or
registrations, filing of court cases, etc.
d) Fine and Penalties
These are general sources of administrative non tax revenues
 These may be applied on public for non compliance with certain
rules and regulations.
 These are not considered as the major source of revenue for the
government.
e) Grants and Gifts
Grants are financial support
These are provided to public authority to perform certain social
activities
These are generated by higher public authority to lower ones
e.g. World bank gives grants to State bank.
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9. Sources of Public Revenue
There is no repayment compulsion
Gifts and donations are voluntarily made by individuals,
organizations or foreign governments to the Central
Government. These gifts are made by natural feeling in case of
disasters or natural calamities.
Gifts are not considered as a source of income.
Rates: rates are levied by local bodies i.e. municipalities etc.
they are generally levied on immovable property of residents but
not necessarily for any special improvements. It varies locality
to locality.
Forfeitures:
Escheat: When a person dies heirless or without a successor or
leaves no will behind, his property or assets go to the State.
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10. Sources of Public Revenue
Budget 2016-17
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11. CAPITAL EXPENDITURE
• Expenditure which are made to yields benefits over a long
period and which are related to any fixed asset are called
capital expenditure.
For example
• Purchase of fixed assets
• Exp. On expansion and modification of fixed assets.
• On acquiring the right to carry business e.g. purchase of
patent , goodwill
• Acquiring of capital e.g. exp. On issue of shares, prospectus.
• On establishment
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12. REVENUE EXPENDITURE
• Incurred for the operation of business
• Benefits of these for the current year
• For smooth running of business
Example
• Incurred for the operation of business-wages, salary legal
expenses, administrative expenses etc.
• On ordinary repairs of fixed assets to maintain the capacity
• For production of goods or for resale of goods-cost of raw
material, production exp.
• Interest on loan
• Depreciation on assets
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13. Difference between capital and revenue exp.
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SL
No.
Capital Expenditure Revenue Expenditure
1 Capital expenditure generates future
economic benefits.
Revenue expenditure generates
benefit for current year only.
2 Capital expenditure is a one-time
investment of money.
Revenue expenditure occurs
frequently.
3 Capital expenditure is shown in
balance sheet in asset side and in the
income statement.
Revenue expenditure is shown
only in income statement.
4 Capital expenditure is a long-term
expenditure.
Revenue expenditure is a short-
term expenditure.
5 Example: Equipment, Furniture,
Building
Example: Wages paid to factory
workers.

14. Public Expenditure
Public expenditure refers to the expenses which the
Government incurs for its own maintenance as also
for the society and the economy as a whole.
Public expenditure can be defined as, "The
expenditure incurred by public authorities like central
and local governments to satisfy the collective social
wants of the people is known as public expenditure."
In developing countries, public expenditure policy
not only accelerates economic growth & promotes
employment opportunities but also plays a useful role
in reducing poverty and inequalities in income
distribution.
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15. Classification of Public expenditure refers to the systematic
arrangement of different items on which the government incurs
expenditure.
1. Functional Classification; Some economists classify public
expenditure on the basis of functions for which they are incurred.
The government performs various functions like defense, social
welfare, agriculture, infrastructure and industrial development.
2. Revenue and Capital Expenditure;
Revenue expenditure are current or consumption expenditures
incurred on civil administration, defense forces, public health and
education, maintenance of government machinery etc.
On the other hand, capital expenditures are incurred on building
durable assets, like highways, multipurpose dams, irrigation
projects, buying machinery and equipment. They are non recurring
type of expenditures in the form of capital investments.
Classification of Public Expenditure
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16. 3. Transfer and Non-Transfer Expenditure
A.C. Pigou, the British economist has classified public expenditure as
 Transfer Expenditure :-
Transfer expenditure relates to the expenditure against which there is no
corresponding return. Such expenditure includes public expenditure on :-
National Old Age, Pension Schemes, Interest payments, Subsidies,
Unemployment allowances, Welfare benefits to weaker sections, etc.
 Non-Transfer Expenditure :-
The non-transfer expenditure relates to expenditure which results in
creation of income or output.
The non-transfer expenditure includes development as well as non-
development expenditure that results in creation of output directly or
indirectly.
Economic infrastructure such as power, transport, irrigation, etc.
Social infrastructure such as education, health and family welfare.
Internal law and order and defense, Public administration, etc.
Classification of Public Expenditure
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17. 4. Productive and Unproductive Expenditure
This classification was made by Classical economists on
the basis of creation of productive capacity.
Productive Expenditure :-
Expenditure on infrastructure development, public
enterprises or development of agriculture increase
productive capacity in the economy and bring income to the
government. Thus they are classified as productive
expenditure.
Unproductive Expenditure :-
Expenditures in the nature of consumption such as defense,
interest payments, expenditure on law and order, public
administration, do not create any productive asset which
can bring income or returns to the government. Such
expenses are classified as unproductive expenditures.
Classification of Public Expenditure
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18. 5. Development and Non-Development Expenditure
Modern economists have modified this classification into
distinction between development and non-development
expenditures.
Development Expenditure :-
All expenditures that promote economic growth and
development are termed as development expenditure.
These are the same as productive expenditure.
Non-Development Expenditure :-
Unproductive expenditures are termed as non
development expenditures.
Classification of Public Expenditure
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19. 6. Grants and Purchase Price
This classification has been suggested by economist Hugh
Dalton.
Grants :-
Grants are those payments made by a public authority for
which there may not be any quid-pro-quo, i.e., there will be
no receipt of goods or services. For example, old age
pension, unemployment benefits, subsidies, social
insurance, etc. Grants are transfer expenditures.
Purchase prices :-
Purchase prices are expenditures for which the government
receives goods and services in return. For example, salaries
and wages to government employees and purchase of
consumption and capital goods.
Classification of Public Expenditure
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20. Classification According to Benefits
Public expenditure can be classified on the basis of benefits
they confer on different groups of people.
Common benefits to all : Expenditures that confer
common benefits on all the people. For example,
expenditure on education, public health, transport, defense,
law and order, general administration.
Special benefits to all : Expenditures that confer special
benefits on all. For example, administration of justice,
social security measures, community welfare.
Special benefits to some : Expenditures that confer direct
special benefits on certain people and also add to general
welfare. For example, old age pension, subsidies to weaker
section, unemployment benefits.
Classification of Public Expenditure
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21. Hugh Dalton's Classification of Public Expenditure
Hugh Dalton has classified public expenditure as follows :-
Expenditures on political executives : i.e. maintenance of ceremonial
heads of state, like the president.
Administrative expenditure : to maintain the general administration of
the country, like government departments and offices.
Security expenditure : to maintain armed forces and the police forces.
Expenditure on administration of justice : include maintenance of
courts, judges, public prosecutors.
Developmental expenditures : to promote growth and development of
the economy, like expenditure on infrastructure, irrigation, etc.
Social expenditures : on public health, community welfare, social
security, etc.
Pubic debt charges : include payment of interest and repayment of
principle amount.
Classification of Public Expenditure
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22. Rise in Government Expenditure
Causes of increase in public expenditure
1. Increase in area and population
2. Growth of state functions
3. Higher price-level and rising cost of public services
4. Increase in national wealth
5. Ability to tax i.e. low income economy vs high income
economy.
6. War and prevention of war
7. Provision of public utility services i.e. more and more public
utility services e.g. water, electricity, transport services.
8. Efficient product mix i.e. when GNP rises it indicates
transformation from agricultural to industrial economy then
goods for the society increases and public expenditure increases.
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23. 9. Expansion in social services e.g. education, public health
measures and medical aid.
10. Technological changes i.e. technological inventions call for
larger or new production in the public sector.
11. Expansion of public sector i.e. socialistic tendencies have in
the modern times resulted in the expansion of public sector.
12. Defective financial and civil administration i.e. duplication
and unnecessary multiplication of govt. agencies are common.
If so not a small but high allocation and wastage of resources.
13. Political and social factors
14. Welfare activities and growth of transfer expenditure e.g. free
education, free medical aid etc. increasing after thirties.
15. Requirement of full employment i.e. employment for all.
16. Economic development i.e. Economic and social overheads
Rise in Government Expenditure
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24. Effect of public expenditure
1. Effects on Production
The effect of public expenditure on production can be
examined with reference to its effects on ability & willingness
to work, save & invest and on diversion of resources.
Effect on allocation of resources among different industries &
trade :
2. Effects on Distribution
Equitable distribution of income and wealth. The benefit to the poor
from the state is far greater than to the rich e.g. poor relief, old-aged
allowance etc.
3. Effects on Consumption
4. Effects on Economic Growth i.e. will and capacity to work,
save and invest, higher efficiency and productivity.
5. Effects on Economic Stability
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25. Principles of Public Expenditure:
The main principles or canons of public expenditure are as
follows;
1. The Principle of Maximum Social Advantage:
All expenditure should satisfy maximum social advantage.
The aim is general welfare or community as a whole not
particular group of society.
2. The Principle of Economy:
Extravagance and waste should be avoided; duplication of
expenditure and overlapping authorities.
3. The Principle of Sanction: sanctioned by competent authority
before expenditure incurred.
4. The Principle of balanced Budgets:
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26. Pattern of the Bangladesh
government expenditure
1. Revenue expenditure
2. Development expenditure
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27. Uses of Public Revenue
Budget 2016-17
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